Securities
investment fund refers to a kind of collective investment method that shares
interests and risks. With the continuous development of China's economy and the
rapid expansion of securities investment fund scale, securities investment fund
has made indelible contributions in stabilizing the market. However, China's
securities market investment fund started relatively late, compared with the
rapid development of the fund itself, fund risk management is relatively backward.
China's securities investment fund has a large gap in both the external
investment environment of the fund and the internal investment management of
the management company, which has caused serious risks and hidden dangers to
the entire fund industry and even the entire securities market.

As
China's securities market is still young, with large fluctuations and a large
number of small and medium-sized investors, the introduction and development of
securities investment funds can play an important role in stabilizing the
market and mobilizing social financial resources. With its professional
management and long-term investment vision, securities investment funds can
effectively defend the interests of small and medium-sized investors and become
the backbone of the stable securities market. China's securities market after
more than ten years of development, has initially formed a certain scale of
national debt market, corporate bonds, financial bonds market and stock market,
relatively perfect system of securities market, in attracting foreign
investment, and speeding up the transformation of state-owned enterprise
management mechanism, to speed up the socialist market economic system
established plays a huge role. However, compared with the western securities
market which has been developed for more than 100 years, it is still far from
perfect and standard. China's securities market is established during the
transition from planned economy to market economy. The characteristics of the
policy market are very obvious, and the regulation from the listed financing to
the secondary market and the rise and fall of the stock index are obviously
regulated by the policy. However, with the gradual improvement of China's
market economy system, the securities market will be gradually market-oriented.
Looking forward to the development of China's securities market, its basic
situation will take the increasing role of market mechanism as the main line,
speed up the deepening process of the securities market, and improve the
functions of the securities market. Need on the basis of the specification in
our stock market gradually cultivate the rational institutional investors,
especially the securities investment fund in order to improve the structure of
the stock market investors, play to securities investment funds to support the
role of market and stabilize the market, reduce market risk, so as to promote
the health of the securities market, the sustained and stable development. From
the perspective of development trend, China's securities market innovation will
be jointly promoted by theoretical innovation, institutional innovation,
product innovation and technological innovation and form a benign interactive
industrial innovation trend. Therefore, it is necessary for China's securities
market and national economic development to correctly understand the risks of
China's securities investment funds and effectively prevent them.

The
"free rider" mentality of diversified fund holders weakened or
eliminated the monitoring of fund managers. The separation of ownership and
control of fund assets exacerbates "insider control" risk. In
traditional enterprises, ownership and management rights are closely combined,
so there is no risk of insider control. However, the "legal person property
system and legal person management structure" determine the insider
control is a concomitant problem with modern corporate system. As far as
securities investment funds are concerned, due to the large number of
investors, they cannot directly carry out the asset operation. In order to
achieve the return effect of fund asset investment, only through the contract
can they reach a separation of ownership and management right between fund
holders, fund managers and fund custodians. Therefore, such a structural
paradigm provides the DE facto soil for the emergence of internal controllers.
Information asymmetry aggravates the failure risk of internal governance
structure. Accurate, true, complete and effective information is the
cornerstone of the fund holder's effective supervision of the fund manager.
However, the dissociation of the ownership and management of fund assets
results in the dissociation of interests between fund holders and fund
managers, the decentralization of fund holders and the hard-to-eradicate
"free ride" mentality, which determines the persistence of
information asymmetry between fund holders and fund managers. In turn, it
deepens the internal controller phenomenon in the management of fund companies,
thus leading to the interactive checks and balances between the holders,
managers and custodians established by the law. Illegal manipulation of the
market, fund managers manipulation of the market mainly because the current
market is not standard, some participants through the manipulation of stock
prices to obtain higher returns. Fund investors must bear the market risk and
legal risk caused by such improper behavior.

The
fund manager's remuneration has little relation with the actual income level of
the fund. Due to the imperfection of laws and regulations, with the development
of society, the securities investment fund structure has become the core of the
securities investment fund legal system. There are some defects in China's
securities investment fund law, such as contradictory provisions concerning
fund structure, unclear legal liabilities between fund contracting parties,
fund sponsors' acting as fund contracting parties in violation of agency law
and possibly harming the rights and interests of investors. Structure design
should be defined in the fund contract in China investment fund and the fund
contract the unique legal status and nature of the premise, by modifying the
perfect regulations, adopt the trinity dual investment fund contract structure
mode, namely to fund managers, managed artificially counterparty, investors
trinity pattern for the relevant beneficiaries, to form a fund manager, managed
human essence trustee, benefit to essence of the dual structure of the
principal. Although China's fund's advantages in terms of professional ability,
information network and capital have increased its ability to control risks,
the fund's ability to control risks has declined in some cases due to the
restrictions of fund contracts and regulations. Such as when markets slashed to
sell for cash, but the law and the fund contract provisions fund will have to
scale the capital to invest in the stock and bond markets, cash holdings by
certain restrictions, to a large extent can cause certain economic loss, it
increase the risk of a securities investment fund investment.

As
the fund sponsor, the fund management company has the right to choose the
custodian, which is the root cause that the custodian lacks independence and
leads to weak supervision. In order to strengthen the supervision of fund
custodians to fund managers, the choice of fund custodians must be changed.
There are two specific methods: one is to directly select fund custodians by
fund holders and cut off the connection between managers and custodians
economically; Another approach is to use the German experience to refer
oversight and options of fund custodians to regulators. In addition, we should
strengthen the custodian's supervision of managers and establish a set of
benefit-risk mechanism for fund custodians. That is, the fund custodian should
make every effort to supervise the operation of the fund since it has obtained
the fund trustee fee from the fund investor. If it is due to poor supervision
or even "collusion" with fund managers to harm investors, it shall
bear the corresponding responsibility. This needs to establish corresponding
compensation system in relevant legal aspects. In addition, the introduction of
foreign Banks as custodians increases the competition among custodians, thus
improving the regulatory efficiency of custodians; Improve the incentive
mechanism for fund managers so that the objective functions of fund managers
and fund holders are consistent. Also, introduce reputation. Reputation is an
indispensable mechanism to maintain the relationship between fund managers and
fund investors. Finally, try to develop the internal governance structure of
corporate securities investment fund. In China, the securities investment fund
mainly adopts contractual internal governance structure. In other countries
where the fund industry has developed quite well, such as the United States,
the company funds are mainly used. The obvious advantage of a corporate fund is
that fund holders can have greater oversight and voting power to better protect
their interests.

In
order to protect the interests of investors and the good development of China's
securities investment funds, it is particularly important to improve the
supervision system of the regulatory agencies. The investment of securities
investment fund should be restricted according to laws and regulations so as to
reduce risk effectively. In order to ensure the independence of fund investment
and protect the interests of investors, the management company and its
shareholder personnel and assets should be independent from each other and
strictly limit the scope of the management company's own capital use. These
measures basically prevent shareholders and others from exerting inappropriate
influence on the management company. On this basis, we should explore and
popularize the management mode of the average shareholding of shareholders,
urge fund management companies to improve their internal management system of
risk control, and reduce the possibility of related trading and insider
trading.

We
should strengthen the legal construction of securities investment funds. At
present, our country has many legal rules about securities investment funds,
such as "interim measures for the securities investment fund
management", has become China's securities investment fund regulation and
operation of the legal basis, and in the pilot of the new situation, introduced
the corresponding measures in time, guarantee fund normative, orderly and
healthy development. However, there is still no unified investment fund law and
relevant legal system. Due to the lack of sound fund laws and regulations, the
fund has been unable to follow certain norms. As the relationship between fund
managers, custodians and beneficiaries and their rights and obligations are not
confirmed in legal form, the rights and obligations of all parties are
difficult to be guaranteed. Only legalization will regulate their behavior.

As
a new and unique financial product, securities investment fund can provide
expert financial management and other related services. In general, diversified
investment by funds can effectively reduce the risk of individual enterprises
or bonds. But if the market as a whole is in decline, so are the portfolios of
funds, including securities. Due to the organization structure, operation means
of China's securities investment fund and the relevant legal limitations of
China's securities investment fund, the defects of China's securities
investment fund in risk management have led to the improvement of securities
investment fund risks and hindered the healthy and stable development of
China's securities investment fund. Through research, this paper believes that
the risk of securities investment funds can be reduced by standardizing the
internal structure of securities investment funds, improving the supervision
system of regulatory agencies, and strengthening the legal construction of
securities investment funds, so as to ensure the healthy development of China's
economy.